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Commentary: Disappointing Jobs Report? Says Who?

""Beauty,"" Lew Wallace, the author of ""Ben Hur,"" once wrote, ""is altogether in the eye of the beholder."" So, it seems, is ""disappointment""-- at least when it comes to describing or characterizing the ""employment report"":http://dsnews.comarticles/payrolls-up-162-in-july-unemployment-rate-down-to-74-2013-08-02 for July, which showed 162,000 new payroll jobs and a drop in the unemployment to 7.4 percent.

The disappointment came not from the unemployment rate--the lowest since September 2008--but from the creation of ""only"" 162,000 jobs.


To be sure, the people who are ""disappointed"" are those forecasters who predicted more jobs would be created. The 162,000 people who did not have jobs before July, though, probably were not disappointed.

What is often amazing in both the political and financial world is how ""analysts"" without hands-on experience can create the standards by which those who _do_ get their hands dirty are measured.

The game is played most frequently on Wall Street, where analysts, using their own Ouija boards, determine a company that has issued its own earnings forecast of, say, $3 per share, has disappointed if it doesn't meet the analysts’ expectation of $3.50 a share--even if the company in fact beats its own forecast.

The bottom line analysis is that the company's earnings report was ""disappointing,"" not that the analysts were wrong. So it goes with economic forecasting.

Thomson Reuters, a financial information service, produces a preview of the employment report each month a couple of days before it is released by the Bureau of Labor Statistics (BLS). The preview of the August BLS release included the payroll jobs forecasts from 90 leading economists, with job creation predictions ranging from 150,000 to 210,000. The median forecast--half above and half below--was 184,000 new jobs.

Five analysts said they thought the economy produced fewer than 162,000 jobs in July; they certainly weren't ""disappointed"" when the actual report was released. (Four others, who predicted 165,000 or 166,000 new jobs, probably weren't ""disappointed"" either.)


One company, which forecast 195,000 new payroll jobs for July, merely said the 162,000 jobs were below expectations but fell back to note the monthly average increase in payrolls this year has been 192,000--""more than enough to keep lowering the unemployment rate,"" which itself is forecast to be 7.0 percent by year end. Never mind that the unemployment rate fell because 240,000 people left the labor force in July. (Without those departures from the labor force, the unemployment rate would have been 7.53 percent, not much different than July's 7.56 percent.)

There were two perhaps more important stories emerging from the employment report: the drop in the average workweek from 34.5 hours to 34.4 and the drop in average hourly earnings.

Indeed, the arithmetic suggests the drop in average hours was the equivalent of 232,000 fewer jobs at June's 34.5 hour work week.

Simply put, the story line from the employment is: more people working for fewer hours and earning less.

The combination of a shorter workweek at a lower rate of pay computes to aggregate earnings in July about 0.25 percent lower than in June--not the recipe for a recovery.

That equation has consequences: It will mean less aggregate purchasing power for consumers, which can torpedo our consumer-driven economy and stifle new job creation, especially for those businesses that look to the appropriate metric of revenue or profit per employee before making hiring decisions.

We can look at the employment report backwards and forwards: What caused the job creation (or job losses), or what does the job creation in July mean for the months ahead?

The look forward is more optimistic. Even though about 46 percent of the 526,000 new jobs in the last three months came in the lowest paying job categories--leisure-and-hospitality and retail--the new jobs suggest a positive outlook for future spending.

Coincidentally, the employment report was released the same day as the latest report on personal income and spending, which showed a faster increase in spending than income. That spending, predominantly for non-durable goods, supports the hiring the employment release reported.

The economy still has hurdles to overcome--not the least of which are the cutbacks in government spending known as ""sequestration""--but 162,000 new jobs is not ""disappointing,"" just a down payment on future growth.

To paraphrase Shakespeare: Nothing is disappointing, but thinking makes it so.

_Hear Mark Lieberman on Friday on P.O.T.U.S. Radio (Sirius-XM 124) at 6:20 a.m. Eastern._

*_Want to write an opinion piece for publication on our site? Send your submission to_* ""[email protected]"":mailto:[email protected]

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.

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